Deutsche Bank will pay $7.2 billion to settle allegations brought by the U.S. Department of Justice (DOJ) that the bank packaged and sold faulty mortgage-backed securities to investors in the run-up to the 2008 financial crisis.
Although negotiations are still ongoing and a final figure is yet to be determined, the proposed $7.2 billion fine is about half of what the U.S. government had initially been seeking. In September it was reported that the DOJ was seeking up to $14 billion in penalties from the bank in the form of cash fines and/or compensation to borrowers, including principal write-downs.
If that $14 billion settlement had gone through “as is,” it would have been the largest fine paid by any institution in connection with the sale of faulty MBS to date.
The $14 billion figure came as a total shock to the bank and its shareholders – and its stock was hammered in recent months as a result. It was initially expected that the DOJ would seek penalties of only up to $3.4 billion.
Deutsche Bank is just one of several major European banks to be sued by the DOJ over the sale of faulty mortgage loans during the past year. This week it was announced that Barclays PLC is being sued by the DOJ over similar claims. However, the bank has vowed to fight those allegations, according to a Bloomberg report. In the case of Barclays, no official settlement figure has yet been released.
In addition, Credit Suisse Group AG this week announced that it has agreed to pay $5.28 billion to resolve similar allegations. The Swiss lender will pay a $2.48 billion civil penalty and $2.8 billion in relief for homeowners and communities hit by the collapse in home prices, Bloomberg reports.
Although the settlement with Deutsche Bank still has not been finalized, it is expected that the bank will pay about $3.1 billion in fines and will provide about $4.1 billion in consumer relief, including principal write-downs.